Wednesday, May 21, 2014

The Busted Order Fallacy: French Socialists Finally Trump Bastiat

By David Stockman

Way back in 1850 the great free market economist, Frederic Bastiat, famously instructed his French readers on the “broken window fallacy”. He decisively proved that destroying assets so that money can be spent on their replacement does not cause economic growth nor increase societal wealth. But now it turns out that was not the end of the matter.

Apparently, French socialists have been looking for a way around Bastiat’s proof for the last 164 years and have finally come up with an answer. Namely, to break the frames, not the window!

What has happened is that the government ordered 200 new trains to replace existing units. This is supposed to goose France’s flagging socialist GDP because such trains do embody a lot of metal, electronics, furnishings and labor—even if this infrastructure “investment” maneuver does require scrapping the perfectly serviceable units now in operation.

But in a rebuke to Bastiat, the specifications for the new trains required that they be too wide to fit the 1,200 train stations that dot the French rail network. That is, the French government will now tear down the stations so that the new trains will fit.

French dirigisme is a wondrous thing. The GDP will now get a double dose of “investment” it doesn’t need and that the French state can ill afford.

The preposterous details of the French “one size fits none” caper follows.

By Tyler Durden at Zero Hedge 
How does the New Normal saying go: “socialist-motion trainwreck“?

In a time before the New Normal “fairness doctrine” where socialized companies such as GM have 60% more recalls in 5 months than they had sales in the prior year, a story such as the following would belong at best to a surreal “Polak” joke. Unfortunately, in this centrally-planned day and age, it is all too real. Reuters reports that in order to boost GDP and to cement that even under hard-core socialism France is still a manufacturing powerhouse, the French national rail company SNCF had ordered some 2000 trains for an expanded regional network from the national rail operator RFF. There was just one problem: the trains were too wide.

And since the local station platforms can not fit the misshaped trains, France now has to spend countless millions and add to its already disturbing budget deficit  in order to repair and construct wider stations. The good news, of course, is that France gets to double count the benefit of the GDP “boost” – first for the screwed up train order, all thanks to some bureaucrat who didn’t feel like double checking his numbers, and second to reconstruct all of its incompatible train stations. Surely this is the purest definition of economic “growth.”

From Reuters:

A spokesman for the RFF national rail operator confirmed the error, first reported by satirical weekly Canard Enchaine in its Wednesday edition.

“We discovered the problem a bit late, we recognise that and we accept responsibility on that score,” Christophe Piednoel told France Info radio.

Construction work has already begun to reconfigure station platforms to give the new trains room to pass through, but hundreds more remain to be fixed, he added.
How could such an idiotic mistake take place: does nobody double check anything under a socialist utopia? Apparently not:

The mix-up arose when the RFF transmitted faulty dimensions for its train platforms to the SNCF, which was in charge of ordering trains as part of a broad modernisation effort, the Canard Enchaine reported.
The RFF only gave the dimensions of platforms built less than 30 years ago, but most of France’s 1,200 platforms were built more than 50 years ago. Repair work has already cost 80 million euros ($110 million).

Still, it wouldn’t be a story about socialist success if it wasn’t someone else’s fault: apparently in this case the responsibility lay in the “absurd rail system” changes made by the previous government.

Transport Minister Frederic Cuvillier blamed an “absurd rail system” for the problem, referring to changes made by a previous government in 1997. “When you separate the rail operator (RFF) from the user, SNCF, it doesn’t work,” he told BFMTV.
 The above originally appeared at David Stockman's Contra Corner and is reprinted with permission.


  1. Leverage in PE Deals Soar Despite Fed Warnings; Amidst Insatiable Demand for Risky Fannie Mae Debt

    Let's first take a look at this article from the Wall Street Journal that highlights the fact that the Federal Reserve is becoming increasingly concerned by leverage ratios financing the latest round of private equity deals. Apparently, the Fed is "warning" banks about this, which is complete disingenuous bullshit considering it is their low interest rate policy that is leading to all of this nonsense. Of course, they could always raise rates and put and end to this, but they know this will collapse the gigantic house of cards they have created. This is a total mess and one gigantic joke.

    The WSJ reports that:

    Wall Street banks are financing more private-equity takeovers with high levels of debt, despite warnings by regulators to reduce the amount of risky loans they make.

    The Federal Reserve and the Office of the Comptroller of the Currency last year issued guidance urging banks to avoid financing leveraged buyouts in most industries that would put debt on a company of more than six times its earnings before interest, taxes, depreciation and amortization, or Ebitda. The Fed and the OCC also told banks to limit borrowing agreements that stretch out payment timelines or don't contain lender protections known as covenants.

    Still, 40% of U.S. private-equity deals this year have used leverage above that six-times ratio deemed the upper acceptable limit by regulators, according to data compiled by S&P Capital IQ LCD. That is the highest percentage since the prefinancial-crisis peak of 52% of buyout loans in 2007. Such lending all but disappeared during the crisis but has risen each year since 2009.

    More references to 2007...

  2. Wow, talk about stupid! Wonder when this will come to amerika?

  3. That is going to be one hell of a screw up first the new trains will just sit there, the stations are going to be a disaster area for anyone trying to use them and railway jerks will run out of money on the the station refit budget so some will work for the new trains which will have sat round for so long doing nothing they will have to be renovated from damage from vandals and the elements, and some stations for the old trains and they will have to employ new staff to operate both sets of trains then you cant lay the old staff off with the old trains so the stations will be fitted with a special extender system for the old trains which will need to close down the present stations so temporary platforms would be needed..........

  4. Bwah ha ha! Paul Krugman would approve!

    In reality, this makes me think of this:

    Back in college one of the guys on the floor had a poster of that picture with SHIT! written at the top.

  5. it helps when everyone isn't stealing..........

    Brevard doctor ordered to pay Medicare $90M

    A Brevard County doctor who operated two cancer centers was ordered to pay the government nearly $90 million for Medicare fraud, court documents show.

    Dr. Wasfi Makar, a radiation oncologist who owned American Cancer Treatment Centers in Titusville and Rockledge, was sued on the government's behalf under the False Claims Act by whistleblower Joseph McBride. McBride worked as a radiation therapy technologist at the Rockledge center.

    RELATED: Medicare paid Brevard providers more than $155 million in 2012

    The final judgment was ordered May 14 by the U.S. District Court for the Middle District of Florida in Tampa. Makar has 30 days to appeal.

    Chad Alvaro, Makar's Orlando attorney, said the doctor did not commit fraud and intends to present evidence to the court and move for a new trail within 28 days of the judgment date.

    "Failing that, he will appeal," Alvaro said.

    McBride filed the suit in 2012 alleging that Makar and the centers billed Medicare for procedures that were never performed or improperly performed from 2009 to 2012, court records show. He also said other radiation therapists were instructed to bill Medicare for procedures requiring an imaging instrument the cancer centers didn't have.

  6. Then 250000 buses were ordered to take up the extra riders while the stations are remodeled. It's a win win!!!